Stock Option Trading Will Drive Growth At Charles Schwab

| March 29, 2011 | 0 Comments

Talk to Chuck… It’s Charles Schwab’s (SCHW) award winning advertising campaign.

If you spend any time watching market news or golf, you’ve undoubtedly seen (or more likely memorized) this ad slogan by now.

I have to admit I like the commercials.

The commercials are shot using a unique rotoscoping animation technique.  Each ad is filmed with real people and then digitally animated.  It’s a cool effect that’s been a huge advertising success.

In fact, Charles Schwab has more than eight million brokerage accounts with $1.6 trillion in client assets under management.  Clearly, they’re doing something right.

The problem is “Chuck” may have spent a little too much time and effort on advertising.  He dropped the ball on trading technology.  As a result, Schwab’s online trading platform is outdated and cumbersome compared to competitors like TD Ameritrade (AMTD), E*TRADE (ETFC), and Bank of America (BAC).

That’s a huge problem for Schwab when they’re vying for customers who want the best tools and services.

Last week Chuck finally did something about it.  They bought equity, options, and futures trading company optionsXpress (OXPS) for $1 billion.

Better late than never, I guess.  TD Ameritrade made a similar deal in 2009.  They bought options broker thinkorswim for $606 million.

The move gives Schwab’s online trading platform a major upgrade.  And just as importantly, it will give their clients a much easier way to trade options.

That’s great news for Schwab’s clients.

And it’s even better news for Chuck…

Option trading is more lucrative than stock or mutual fund trading.  Schwab makes more money each time a client trades an option.  And investors who use options typically trade more frequently than stock traders.

In fact, analysts at Macquarie said “if Schwab’s clients each did 10 extra trades a year, Schwab could collect $50 million in additional annual revenue.”

Clearly SCHW has some upside as they bring the optionsXpress trading platform online and customers begin trading options more frequently.

What’s more, option trading is growing faster than stock, mutual fund, or ETF trading.  If Chuck wants to grow, they need to have a trading platform built for options trading.

It’s not surprising that stock option trading is the hottest growth story in the investment world.

What’s surprising to me is that more investors don’t trade options!

In just the last few years, options trading has undergone major changes. As a result, options trading is now much more accessible to retail investors.  The costs are lower and the markets are more liquid than ever.

We’ve also seen new products like index options, LEAPS, and CBOE’s VIX products.

And to top it off, better training and education is available online for investors to learn how to trade options.  The Options Industry Council has a great website chock full of great training tools.  They offer everything from the basics to training on advanced options trading strategies.

Tags: , , ,

Category: Options Trading

About the Author ()

Corey Williams is the editor of Sector ETF Trader, an investment advisory service focused on profiting from ETFs and the economic cycle. Under Corey’s leadership, the Sector ETF Trader has become one of the most popular and successful ETF advisories around. In addition to his groundbreaking service, Corey is the lead contributor to ETF Trading Research, where he shares his insights about ETFs and financial markets on a daily basis. He’s also a regular contributor to the Dynamic Wealth Report and the editor of one the hottest option trading services around – Elite Option Trader.

Leave a Reply

Your email address will not be published.